U.S. Home-Flipping Activity Drops As Returns Remain At Near Seven-Year Low
Overall Home Flips Drop 12.9 Percent in Third Quarter of 2019 After Unusually Active Spring; Percent of Flips Purchased with All-Cash at Two-Year High
IRVINE, Calif. – December 12, 2019 — ATTOM Data Solutions, curator of the nation’s premier property database and first property data provider of Data-as-a-Service (DaaS), today released its third-quarter 2019 U.S. Home Flipping Report, which shows that 56,566 U.S. single family homes and condos were flipped in the third quarter of 2019, down 12.9 percent from the previous quarter and down 6.8 percent from a year ago. After an unusually lively flipping market in the spring of this year, the declines stood out as the largest quarterly and annual drops since the third quarter of 2014.
The homes flipped in the third quarter represented 5.4 percent of all home sales during the quarter. That level was down from 6 percent of all home sales in the second quarter of 2019, but up slightly from 5.2 percent a year ago.
Homes flipped in the third quarter of 2019 typically generated a gross profit of $64,900 (the difference between the median sales price and median paid by investors), up 1.8 percent from the previous quarter and 3.5 percent from a year ago.
However, the typical gross flipping profit of $64,900 translated into a 40.6 percent return on investment compared to the original acquisition price, down from a 41.1 percent gross flipping ROI in the second quarter of 2019 and down from a margin of 43.5 percent in the third quarter of 2018. The latest returns on home flips stood at the second-lowest point since 2011, barely above the 40 percent ROI from the first quarter of this year.
“After a springtime selling binge earlier this year, the home-flipping business settled way down over the summer amid a continuing scenario of languishing profits,” said Todd Teta, chief product officer at ATTOM Data Solutions. “The retreat back to more normal levels of sales comes amid broader market forces that are making it harder and harder for investors to complete the kinds of deals they were getting as recently as last year. Those forces are keeping profits way down from post-Recession highs and show no signs of easing.”
Maksim Stavinsky, co-founder and COO of Roc Capital noted that borrowers’ declining profits on flips are leading to much greater interest in renting out renovated properties instead of flipping them.
“We have been seeing a decline in projected and realized profits for borrowers on projects, despite the fact that borrower financing costs have been meaningfully coming down,” said Stavinsky. “This has led to much greater interest and activity in our rental programs. We expect these trends to continue.”
Home flipping rates down in 78 percent of local markets
Home flips as a portion of all home sales decreased during the third quarter of 2019 from the previous quarter in 115 of the 147 metropolitan statistical areas analyzed in the report (78 percent). The largest quarterly declines in the home flipping rate came in Manchester, NH (down 40 percent); Reno, NV (down 33 percent); Salem, OR (down 31 percent); Clarksville, TN (down 31 percent) and Vallejo, CA (down 31 percent). Metro areas qualified for the report if they had a population of at least 200,000 and at least 50 home flips in the third quarter.
The biggest quarterly decreases in MSAs with at least a population of 1 million or more were in Rochester, NY (down 29 percent); Grand Rapids, MI (down 25 percent); Boston, MA (down 25 percent); Providence, RI (down 24 percent) and Milwaukee, WI (down 24 percent).
Home flips purchased with financing continue dropping while those bought with cash climb
Nationally, the percentage of flipped homes purchased with financing dipped in the third quarter of 2019 to 41.5 percent, from 43.7 percent in the prior quarter and 46 percent a year ago. Meanwhile, 58.5 percent of homes flipped in the third quarter of 2019 were bought with all-cash, up from 56.3 percent in the second quarter and 54 percent a year ago.
Among 53 metropolitan statistical areas analyzed in the report with a population of 1 million or more, those with the highest percentage of flips purchased with financing in the third quarter included San Jose, CA (59.4 percent); Providence, RI (56.9 percent); Seattle, WA (56.0 percent); Boston, MA (54.9 percent) and San Diego, CA (53.4 percent).
Home flippers are doubling their money in eight markets
Despite decreases in profit margins nationally, eight MSAs analyzed in the report had third-quarter 2019 gross ROI flipping margins of at least 100 percent: led by Pittsburgh, PA (132.6 percent); Scranton, PA (122.5 percent); Flint, MI (111.2 percent); Cleveland, OH (109.8 percent) and Hickory-Lenoir-Morganton, NC (109.7 percent).
Typical home flipping returns remained near post-Recession low points
Homes flipped in the third quarter of 2019 were sold for a median price of $224,900, with a gross flipping profit of $64,900 above the median purchase price of $160,000. That profit figure was up from a gross flipping profit of $63,750 in the previous quarter and up $62,700 in the third quarter of 2018. But with prices rising on investor-purchased homes, the median 40.6 percent return on investment was down from the post-Recession peak of 52.1 percent in the second and third quarters of 2016.
Among the 53 markets with at least a population of 1 million or more, those that saw the smallest gross flipping profits included Raleigh, NC ($25,000); Austin, TX ($27,549); Phoenix, AZ ($31,135); Las Vegas, NV ($33,150) and Kansas City, MO ($39,141).
Average time to flip nationwide is 177 days
Home flippers who sold homes in the third quarter of 2019 took an average of 177 days to complete the flips, down from an average of 184 days for homes flipped in the second quarter, but the same as the average for homes flipped a year earlier.
Among the 147 metro areas analyzed in the report, those with the shortest average days to flip were Durham, NC (135 days); Raleigh, NC (138 days); Phoenix, AZ (138 days); Memphis, TN (142 days) and Birmingham, AL (146 days).
Metro areas with the longest average days to flip were Provo, UT (226 days); Buffalo, NY (219 days); Asheville, NC (216 days); Gainesville, FL (216 days) and Boston, MA (215 days).
Flipped homes sold to FHA buyers increases from previous quarter
Of the 56,566 U.S. homes flipped in the third quarter of 2019, 14.5 percent were sold by the flippers to buyers using a loan backed by the Federal Housing Administration (FHA), up from 14.4 percent in the previous quarter but down from 12.1 percent a year ago.
Among the 147 metro areas in the report, those with the highest percentage of Q3 2019 home flips sold to FHA buyers — typically first-time homebuyers — were Stockton, CA (37.3 percent); Visalia, CA (34.3 percent); Ogden, UT (34.0 percent); Lakeland, FL (29.9 percent) and Corpus Christi, TX (29.5 percent).
Twelve counties had a home flipping rate of at least 12 percent
Among 695 counties with at least 10 home flips in the third quarter of 2019, there were 12 counties where home flips accounted for at least 12 percent of all home sales. Here are the top five: Fayette County, PA, in the Pittsburgh metro area (17.9 percent); Cameron County, TX, in the Brownsville metro area (15.5 percent); Portsmouth City/County, VA, in the Virginia Beach metro area (13.5 percent); Kings County, CA, in the Hanford-Corcoran metro area (13.2 percent) and Rockingham County, VA, in the Harrisonburg metro area (13.1 percent).
Ten zip codes had a home flipping rate of at least 25 percent
Among 1,684 U.S. zip codes with at least 10 home flips in the third quarter of 2019, there were 10 zip codes where home flips accounted for at least 25 percent of all home sales. Here are the top five: 35005 in Jefferson County, AL (38.3 percent); 93212 in Kings County, CA (37.9 percent); 78537 in Hidalgo County, TX (31.3 percent); 33147 in Miami-Dade County, FL (28.1 percent) and 08046 in Burlington County, NJ (27.0 percent).
ATTOM Data Solutions analyzed sales deed data for this report. A single-family home or condo flip was any arms-length transaction that occurred in the quarter where a previous arms-length transaction on the same property had occurred within the last 12 months. The average gross flipping profit is the difference between the purchase price and the flipped price (not including rehab costs and other expenses incurred, which flipping veterans estimate typically run between 20 percent and 33 percent of the property’s after repair value). Gross flipping return on investment was calculated by dividing the gross flipping profit by the first sale (purchase) price.
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